Bitcoin price has been soaring last 8 weeks and has returned more than 150% per year so far. But, still, it has yet to reach an all-time high. However, Bitcoin reached an all-time high network fee collected this week and is comparable to Ethereum network fees.
Bitcoin transactions reached a cost of over 350 satoshis per vByte (sat/vB) recently. A vByte is a measure of block weight and transactions, with one vByte equal to four weight units and Satoshi is the smallest denomination of Bitcoin available ( 0.00000001 BTC). Each Bitcoin block can store 4 million weight units of witness data in total, with the standard SegWit-based transaction weighing just 1 weight unit. Also, Mempool data shows that the weight of Bitcoin’s mempool (where still unconfirmed transactions are stored) reached a new high of 390 megabytes (vMB) on Tuesday. That’s a sign of major blockchain congestion, meaning slower BTC settlement times and more costly transactions — which destroys the feasibility of smaller on-chain payments.
In a nutshell, this year, not only is the cost of buying Bitcoin hitting record highs but is also the cost of moving it. Blockchain data shows that the price for Bitcoin block space has touched a new all-time high in BTC terms — largely due to massive demand created by Ordinals transactions.
What are Ordinal transactions?
So, what are these ordinal transactions that are causing congestion on the blockchain and increasing the cost of moving the data? Bitcoin ordinals are special types of Bitcoin transactions that follow a specific protocol named Ordinary Theory Protocol.
This protocol has a set of rules that govern the creation and management of Ordinal inscriptions on the Bitcoin blockchain that allow the users to inscribe data directly onto the Bitcoin blockchain, essentially creating a permanent and decentralized record of that data. This data can include anything from text and images to code and NFTs. This opens up a wide range of possibilities for using the Bitcoin blockchain for more than just financial transactions.
Bitcoin Ordinals utilize the OP_RETURN opcode (Learn more about the Ordinary Theory Protocol ), which allows for embedding arbitrary data within a Bitcoin transaction. This data is then stored on the blockchain along with the transaction itself. Anyone can then access and verify the inscribed data by examining the relevant transaction on the blockchain.
At this point, I was asking myself why the congestion does not happen in Ethereum as we store a lot of NFTs. Ordinal NFTs store the image data directly on the Bitcoin blockchain. This data is embedded within the transaction itself, using the OP_RETURN opcode. On the other hand, Ethereum NFTs only store a reference to the image data on the blockchain. The actual image is typically hosted on a centralized server, like IPFS or Arweave.
Pros of Ordinal Transactions
Immutability: Once inscribed on the Bitcoin blockchain, data becomes permanent and immutable, meaning it cannot be altered or deleted.
Decentralization: Data is stored on a decentralized network, eliminating the need for a central authority.
Security: The Bitcoin blockchain is one of the most secure networks in the world, ensuring the integrity and safety of inscribed data.
New use cases: Bitcoin Ordinals open up a wide range of new use cases for the Bitcoin blockchain, including NFTs, digital collectibles, censorship-resistant data storage, and more.
Cons of Ordinal Transactions
Transaction size: Inscribing large amounts of data can make transactions larger and more expensive to process.
Technical complexity: Working with Bitcoin Ordinals currently requires technical knowledge and specialized tools.
Scalability: The Bitcoin blockchain has limited capacity, and widespread adoption of Ordinals could lead to scalability issues.
Final Points
Ordinal transactions have become a boon for Bitcoin miners. They have earned more from the transaction fees generated than the standard 6.25 BTC block subsidy. However, this can also take up the blockchain space rapidly and make Bitcoin unusable in the future. So, considering the pros and cons of ordinal transactions as mentioned above, a balance has to be achieved between directly writing data on the blockchain and offloading the data to the centralized servers ( used by Ethereum) to keep the blockchain usable and scalable.
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